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Two local developers hope to begin construction by the end of the year on a major new office and residential project in the heart of Buckhead.

Stafford Properties Inc. and Trammell Crow Residential are planning the mixed-use project on a 4.4-acre tract at 3040 Peachtree Road between the ESPN Zone restaurant and the One Buckhead Plaza office tower.

Called Two Buckhead Plaza, the development would include a 186,000-square-foot office building fronting Peachtree Road and a 300,000-square-foot residential tower behind it.

The office component is not purely that -- about 26,000 square feet will be retail that will front the street, said David Oliver, president of Stafford Properties. Stafford plans to develop another 14,000-square-foot shopping center tied to the parking deck behind the office building.

The plan involves speculative office space (that is, office space built without any pre-signed tenants), which would make it the first such office construction in metro Atlanta in some time.

Oliver acknowledged it may not be the ideal time for speculative office space, but he said he and Trammell Crow officials were confident about the overall demand for the project. Besides, the project has to be constructed as one piece and not a segment at a time, Oliver said.

"Maybe it's not the best timing, but when one [piece of the project] goes, they all got to go," Oliver said. "We're prepared to go forward and are going forward" as soon as city permits are obtained.

The project would be the first intown office development for Stafford Properties, a firm better known for shopping centers. Stafford manages more than 30 commercial buildings, including 14 shopping centers and three office buildings, throughout the Southeast.

This will be the first speculative office building started in Atlanta since Hines Interests L.P. finished Perimeter Summit and Duke Realty Corp. finished the 133,000-square-foot Hillside Three in 2002, said Chris Shaner, an analyst with Dorey Market Analysis Group in Atlanta.

"That's a pretty bold move on their part," Shaner said. "I didn't expect to see anything in the near future. Demand hasn't returned anywhere to warrant new construction. If they can get the financing to start it, they may be getting the head start [for a possible rebound]."

It also may be one of a few signs of renewed interest in speculative office construction in metro Atlanta, Shaner said.

Dewberry Capital Corp. also is working on plans to start construction in 2004 on Two Peachtree Pointe, a planned 300,000-square-foot office building on Peachtree Street next to One Peachtree Point. Shaner said Dewberry officials are shooting to finish the project by 2005 even if the building is done on speculation.

Stafford purchased the Buckhead property last year for $6 million, according to the real estate data firm Databank Inc. A small building on the site will be torn down, Oliver said.

The developers still must obtain land disturbance permits from the city of Atlanta and the state Department of Transportation.

Challenges

Trammell Crow Residential is mainly driving the development as of now, Oliver said.

The company plans to build a residential tower with 195 apartment units and 75 condominium units, said Pat Wilson, senior project manager of the construction division of Trammell Crow Residential.

"Our current plan is to operate our own apartments," Wilson said.

Still, many industry analysts say Stafford will have an uphill battle in both developing the building and filling it with office tenants. For one, the company has yet to officially secure financing for the project, Oliver said.

The overall project is projected to cost $90 million, $50 million for Crow's residential tower and $40 million for the office, with an 18-month construction timetable.

"Certainly it's not the most favorable time to get financing. But we have pretty strong financial history ... and we're willing to put a lot of money into the deal," Oliver said.

Michael Zibilich, managing director of Bullock Mannelly Partners Inc. in Atlanta, said Stafford will have a tough time finding financing in the current environment, especially for speculative office.

"The amount of equity is going to have to be substantial on this for someone to take the risk. This is going to be a tough time," Zibilich said. "There's too much uncertainty ... even though 160,000 square feet is not a lot of square feet. We've got some interesting market dynamics in the Atlanta market that are going to make lenders naturally wary."

And Clark Gore of Holder Properties Inc. said Stafford would have to put down at least half the equity on the construction before a lender would consider it.

"A building that size ... could probably be financed 50 to 60 percent on spec. But I can't imagine anybody would commit to a financing package for anything less than 50 percent equity," Gore said. "I've seen their plans, and I think they've done a good job in proposing the right mix for that area."

Oliver also said his company would seek small office users for the project, ones already characteristic of the Buckhead market.

It's true about Buckhead Plaza, the 444,800-square-foot tower next door. The building's largest tenants include Fitzgerald & Co. with 37,000 square feet with a lease lasting until 2004; Morgan Keegan & Co. with 20,000 square feet expiring in 2009; and Niles Bolton Associates with 23,100 square feet expiring in 2008, according to real estate tracking firm CoStar Group Inc.

Some real estate experts say small office tenants will be difficult to find, even in Buckhead. For instance, Buckhead Plaza has a 21.5 percent vacancy rate. The Capital Building, a 75,000-square-foot office building on East Paces Ferry Road in the heart of the Buckhead club district, still has more than 40,000 square feet available.

"How many small office users are out there? It's an awfully challenging market," said Randy Merrill, senior vice president of CB Richard Ellis Inc. in Atlanta.

Merrill said one of the challenges that Stafford will face with the office component will be competition from area office buildings, particularly for the smaller office tenant.

"Frequently your competition is actually greater for a smaller user because he can go more places," he said. But Merrill said he believes the planned retail will do well given the property's visibility in Buckhead.

Despite the skeptics, Oliver remains confident about the project.

"It's a bold move, and it's a trophy piece of property. If anything can garner any attention in this market, this Peachtree piece can," he said.